An American Perspective from China

Beijing Tenants Fight Eviction

In my recent post about the hit Chinese TV series “Dwelling Narrowness,” I mentioned that one of the secondary plots involved an old lady who holed up in her home to demand higher compensation after local officials announced plans to demolish and redevelop her neighborhood. The storyline portrayed the popular phenomenon of “nail houses” (so called because they’re hard to extract, like a nail stuck in a board) where Chinese tenants wage an uphill and sometimes dangerous battle against forced relocation.

A few days ago, journalist Andrew Jacobs had an excellent article in the New York Times that offers a compelling account of a real-life “nail house” here in Beijing. It gives a vivid sense of the drama and stakes involved in such disputes, and I highly recommend reading the whole thing.

The basic story is as follows: Just before the 2008 Olympics, 28-year old Qin Rong and her boyfriend opened the Fish Castle Restaurant in a neighborhood next to the Bird’s Nest stadium. They took out a 3-year lease on the site and spent what they estimate at US$75,000 getting it set up. This summer, a large state-owned property developer bought the entire neighborhood for $700 million and began clearing it to construct a glittering new development, in order to take advantage of sky-high real estate prices. They told Ms. Qin she had two months to get out and, after much wrangling, offered just $5,000 in compensation. She refused, and hunkered down in the Fish Castle even as the developer started to tear down all the sites around it.

At this point, developers in China usually send in the paid thugs to rough up the resisters and “persuade” them to get going. As the article notes, in a couple instances, people have even been killed or committed suicide in protest. Figuring things were about to get rough, Ms. Qin hired Lu Daren, a former “relocation specialist” (bully boy) who used to work for developers and knows all the tricks of the trade, but changed sides after the wife of one tenant he was evicting got run over by a bulldozer. The Times describes one of several confrontations that ensued:

On Tuesday of last week, as [Lu] posted a handwritten sign on the window that read “To Die Gloriously Is to Live Great,” he and witnesses said, about 60 men crashed through the restaurant’s front door and dragged him on to the pavement. He said he looked up to see the owner of the noodle shop — another holdout business — being thrashed and the man’s pregnant wife being kicked in the belly.

Then, for some inexplicable reason, the attackers retreated into their vehicles. Before they could drive away, Mr. Lu ran up to one of their vans and jammed the pole of his banner — the one that read “Nail House” — into the steering wheel, he said. In a moment of panic and shattered glass, the men abandoned their vehicles and ran off. The police came, poked around, and then left, saying they could not intervene in a commercial dispute, Mr. Lu and witnesses said.

In addition to Mr. Lu, Ms. Qin and her boyfriend, Zhong Boxin, the Fish Castle defenders include the restaurant’s former cooks and waiters. Everyone slept on banquettes piled high with blankets.

As I mentioned, the full story is well worth reading. But there are a couple of quick observations I’d like to add:

First, the episode highlights the weakness of legal dispute resolution mechanisms in China and how everyday business conflicts over leases and such tend to devolve into violent confrontation. The police and courts are frequently seen as either hopelessly biased (especially if one of the parties is state-owned) or simply irrelevant.

Second, I’m familiar with the neighborhood involved (around the Olympic stadium), and the dynamic at work here isn’t just the usual controversies surrounding much-needed urban redevelopment. What’s happening there is speculative overbuilding, which is driving real people out and replacing them with empty shells. Take the Pangu Plaza, a massive, much-touted multi-building project just across the street from the Water Cube. It’s over two years old and the huge mall on the mezzanine floor is completely empty. I can’t say what the occupancy rate is for the 7-star hotel and office complex, but the place looks (on an otherwise busy workday) like a ghost town — an impression confirmed by conversations with friends in the real estate industry, and the latest reports I’ve seen. Hardly the kind of neighborhood just crying out for even more premium usable space!

Third, the other trend this story hints at is the role state-owned developers, flush with stimulus funds, have played in pumping up property prices in China. The lending boom this past year has provided SOEs with plenty of money to plow into real estate. Many of them have no experience in property investment and, as ChinaStakes.com reports, even central government ministries have gotten in on the game directly:

The National Audit Office data shows that 25 central ministries are involved in real estate violations, worth billions of yuan. Among them, unlisted assets of 51.6917 million yuan from the Ministry of Foreign Affairs have gone into purchasing real estate. The Ministry of Agriculture has developed commercial housing, acting beyond its authority, and has submitted false reports on housing subsidies. In 2008, a real estate rental service center under the Ministry of Finance took in rental income of 5.3193 million yuan. The Ministry of Public Security has approved construction projects worth 422 million yuan, utterly exceeding its authority. Other data show that among 136 central enterprises under the State-owned Assets Supervision Administration Commission, about 70% of the companies are involved in real estate, among which 16 firms are primarily based in the property industry, including Poly, Sino-Ocean, and China Resources, while more than 80 outside firms have business in real estate. Among the top ten highest priced land purchases in major cities in the first half of this year, 60% were gobbled up by SOEs.

For those who are interested in further details, I highly suggest reading the full article at ChinaStakes.com here and a more recent update here.

Finally, Dexter Roberts has a good overview of “bubble” sentiment in China’s real estate sector at Bloomberg here. I’m going to be exploring some more real estate-related issues in-depth, including the role of leverage, over the next few days, so stay tuned.